Singapore Medical Group - UOB Kay Hian 2018-11-08: 9M18 Healthy Performance; Regional Play In Motion

SINGAPORE MEDICAL GROUP LTD (SGX:5OT) | SGinvestors.io SINGAPORE MEDICAL GROUP LTD (SGX:5OT)

Singapore Medical Group - 9M18: Healthy Performance; Regional Play In Motion

  • Singapore Medical Group's 9M18 results were broadly in line, accounting for 71.3% of our full-year forecast. Net profit rose 66.7% y-o-y due to strong continual revenue growth, while overseas JVs attained profitability.
  • The group has been quick to scale its SW1 Clinic acquisition; it is already on track to open SW1 Vietnam in Nov 18 and a second clinic locally. Plans to bring the aesthetics platform into Indonesia and Malaysia are also underway.
  • Maintain BUY and PE-based target price of S$0.74.



9M18 RESULTS


9M18 results in-line. Strong continual revenue growth.

  • Singapore Medical Group (SMG) announced 9M18 net profit of S$9.9m, up 66.7% y-o-y. This represents 71.3% of our full-year forecast, broadly in line with our estimate.
  • Group’s revenue increased 18.9% from S$18.5m in 3Q17 to S$22.1m in 3Q18. 3Q18 revenue performance was attributed to the increase from the health business segment, which grew by S$0.6m (+3.8% y-o-y), mainly contributed by the kids clinics and organic growth of the existing specialist clinics.
  • The diagnostic & aesthetics revenue also improved by S$3.0m (+76.6% y-o-y) on the back of the newly-acquired imaging centre at Novena and the contribution from the new SW1 Clinic, acquired at the end of Apr 18.

Gross margins holding up.

  • Gross margin increased slightly by 1ppt from 42% in 3Q17 to 43% in 3Q18. This was due to the change in sales mix of the health business segment and diagnostic & aesthetics business segment.
  • Management expects margins to track the current range.

Turning profitability in overseas JVs & associates.

  • The group recorded a better profit share from JVs and associates, at S$102,000 for 3Q18 vs a loss of S$66,000 for 3Q17. This was attributed to an improvement in performance at its JV eye clinic in Jakarta.



STOCK IMPACT


Expansion on the horizon.

  • Following the acquisition of SW1 Clinic in Apr 18, SMG has been quick to scale up in the region and is currently on track to officially launch SW1 Vietnam in Nov 18, a brand new 4,000 sf aesthetics centre. It is also in advanced stages in building up its regional operations, bringing the aesthetics platform into Indonesia and Malaysia.
  • On the local front, Singapore Medical Group will also look to open the second SW1 clinic at OUE Downtown Gallery by the end of the year, while continuing to grow its healthcare network through new pediatrics and dental clinics.

Updates on tele-medicine.

  • Singapore Medical Group has completed its development of a proprietary specialist tele-medicine platform (part of the Ministry of Health sandbox), with a soft beta launch expected in Dec 18. While in its infancy, the platform provides the group with a good avenue to ride on the trend of convenient and accessible healthcare.

Possible corporate actions.

  • Singapore Medical Group reiterated the possibilities of implementing a formal dividend policy in 2019 and a share buy-back mandate given the group's improved performance and strong cash position.


EARNINGS REVISION/RISK

  • We make no change to our 2018-19 earnings estimates.


VALUATION/RECOMMENDATION

  • Maintain BUY and PE-based target price of S$0.74.
  • We roll valuation to 2019, pegged to revised peers’ average 2019F PE of 22.2x. The stock is trading at an undemanding 12.4x 2019F PE, with strong earnings growth prospects.


SHARE PRICE CATALYST

  • Earnings-accretive M&As.
  • Stronger traction in high-growth markets such as Vietnam.






Lucas Teng UOB Kay Hian Research | Andrew Chow CFA UOB Kay Hian | https://research.uobkayhian.com/ 2018-11-08
SGX Stock Analyst Report BUY MAINTAIN BUY 0.740 SAME 0.740



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